Market Summary

Yield Movements

Local currency (LCY) government bond yields in the Republic of Korea fell for most maturities between 3 March and 30 May on expectations of further rate cuts by the Bank of Korea to support the economy amid stable inflation. The Bank of Korea cut the base rate by another 25 bps to 2.50% at its 29 May monetary policy meeting. The central bank also lowered its economic growth forecasts for 2025 and 2026 to 0.8% and 1.6%, respectively, from the February forecasts of 1.5% and 1.8%, as ongoing global trade tensions continue to dampen demand and exports.

Local Currency Bond Market Size and Issuance

The size of the Republic of Korea's LCY bond market rose 0.8% quarter-on-quarter (q-o-q) in the first quarter of 2025 to KRW3,324.6 trillion, solely driven by the government bond segment. Government bonds outstanding rose 2.6% q-o-q; while the corporate bond market, which continued to comprise a majority of the total LCY bond market, marginally contracted 0.1% q-o-q on reduced issuance. Total LCY bond issuance contracted 12.5% q-o-q to KRW249.4 trillion in the first quarter of 2025 due to lower sales of corporate bonds amid the weak economic outlook brought about by global trade tensions.

Sustainable Bond Market

The Republic of Korea's sustainable bond market contracted slightly by 0.6% q-o-q to reach a size of USD183.1 billion at the end of March 2025. Sustainable bonds outstanding issued by private companies comprised 52.6% of the total, while the public sector accounted for the remaining 47.4%. By bond type, social bonds – almost three-quarters of which come from the public sector – dominate the Republic of Korea's total sustainable bond market with a share of 54.0%. Green bonds followed with a 28.2% share, mostly issued by the private sector. The Korean won continued to be the predominant currency of outstanding sustainable bonds with a share of 58.8%.